How To Calculate Best Software Development Cost

If a software vendor provides software development cost estimations based on limited information about the project, there is surely something wrong.

The overall and final purpose of software outsourcing or building bespoke software is getting a better ROI and improving your business profits rather than randomly implementing a software solution without a primary goal. Both software vendors and business owners should understand this motive and their roles for the successful completion of the software development lifecycle.

Software development cost estimation is a part of the premier stage of the software development lifecycle. To give accurate estimates software vendors consider certain factors and need appropriate information from your side.

With the help of modern technologies, you can outsource your software development needs and hire software developers literally in any part of the world. Software outsourcing to overseas developers or hiring software development companies opens up the doors of the global talent pool. Investing in modern software solutions and technologies becomes financially available for both startups, SMEs, and big enterprises because of the flexible cost estimations.

An increasing number of companies prefer software outsourcing to increase the ROI. Remote working has become even more popular especially after the COVID-19 pandemic, which “forced” businesses worldwide to go remote. Many companies that were skeptical about the effectiveness of remote working or offshore software development now changed their minds.

Understanding the cost calculation for software development outsourcing is currently a pretty hot topic. At CodeRiders, clients’ awareness and clear communication are crucial to us, so, we shed light on this topic.

5 Factors that Build The Cost of Software Development

#1 Full data about the software development project from the client

Providing estimates for software services is the vendor’s responsibility. However, the accuracy of software development cost is highly based on your detailed, more specific requirement sheet. Think of it as house construction. You require an estimate from a construction company for your house only after providing architecture and design documents, right? In software outsourcing, it’s the same principle. Providing a SOW document (Scope of Work), technical documentation, or something similar, defines the easy and steady start of a software outsourcing lifecycle.

#2 The complexity of your product

What’s the size of your software? Is it a 10-15 screen product or bigger? The more various pages, screens, functions, features you want, the more work and time will be required to build your product.

In software development, there are usually 4 levels of a software outsourcing project, so business owners hire software developers based on the size of their projects:

Small project: It is associated with minor changes in already existing software. For example, bug fixes, interface settings, data migration.

Medium project: Medium size applications are categorized by adding several functions to already existing software. Simple mobile or web applications or website development can be considered medium-size software development projects.

Large project: Large projects are specified by integrating multiple systems, data integration, database component, security and login information, functionalities, and likewise software solutions and services. For example, large projects may include multi-platform applications, complex management or business systems, and more.

Enterprise project: Enterprise projects require a high level of security, authentication, and safety, thus need integrations of more complex software solutions. In short, enterprise projects require various functionalities for features integrated into the software with a complex and high level of security and safety standards. ERP systems, huge E-commerce platforms, FinTech, E-learning solutions, HealthTech platforms, media, and entertainment platforms are examples of enterprise-level projects.

About mobile and web applications

Generally, there are 3 types of mobile or web applications:

Basic apps: These apps take approximately 500-700 hours to build but include a limited number of features, and functionalities are quite simple.

Medium complexity apps: These apps take approximately 700-1200 hours to build and include more complicated features.

Complex applications: Complex apps take 1200+ hours to build. This type of apps takes more time and effort to develop and implement. Software developers, web and mobile application developers work on complex software architecture, security, various integrations, data migrations, and more.

#3 Type of software development process

Software development takes some time. However, building a brand new application or making some minor changes to an already existing one cannot cost the same amount of money. There are usually the following 4 types of software development partnerships.

Development of new software or building software from scratch: In this case, a brand new application, website, or software is being developed and implemented. Naturally, this process takes more time and resources. The cost of such software development depends on the complexity of the product. Whether it is simple, complex, or medium software, consider that the price is usually much higher as it also includes database development, project design, and architecture.

Improvements and modifications in the existing software: This is the process of adding and modifying certain features and functions into the existing software.

Integration of ready-made new software into existing business processes: A one-time process that requires the minimum resources and time compared with the above ones.

Although these are usually the legit factors of calculating the whole price of the software development lifecycle, there are still some exceptions. For example, at CodeRiders, we came across such projects that were developed so purely that the after-all modification process would have taken more time than building a new one from scratch. So, we discussed all the possibilities with our clients and came up with the most legit solution of building a brand new product. In such cases, having a qualified software development partner is very important. Check our award by EuroAsian Startup Awards (EASA) as Best Software Development Partner.

On the other hand, regarding the actual technical process, there are several types of software developers and designers. Let’s talk about a few of them.

Front-end developers work on everything that the user can see and interact with. In short, front-end developers work on the graphical user interface of a website making it possible for the users to orientate in the website, view, and interact with it.

Back-end developers work on the structure of the software application. There are also full-stack developers who work on both the back-end and front-end functionalities. A typical example of back-end software development is the login or registration process. When the users fill in their credentials for the login or registration, this data is first “sent” to the server to check if it is correct and then returns with an answer to the users. Examples of answers can be “This e-mail is already registered”, “Wrong credentials”, “Successful registration”, and so on.

Designers create the look and feel of the website. Designers handle the visual and conceptual part using UX and UI tech stack.

There are also several types of mobile app developers. Let’s talk about native and hybrid mobile app development specialists. If you build native mobile applications, you need to hire separate developers for iOS and Android operating systems. This takes more time and money. On average, native mobile app developers spend 20%-30% more of the initial time of building mobile applications. This happens because hybrid mobile applications don’t require 2 separate mobile app development processes for iOS and Android operating systems. Hybrid mobile app developers build an app that works in both operating systems. Not only do hybrid mobile applications take less time to build, but they are also more affordable. Hiring hybrid mobile app developers costs less than hiring native mobile app developers. At CodeRiders we offer hybrid mobile app developers.

#4 Seniority of software developers

As in any other industry, in the software development or the IT industry, there are different levels of programmers or software engineers. Usually, software developers are categorized as follows:

Junior software developers: Junior software developers are just starting their career, thus they still require technical support from their colleagues and have less working experience. Consequently, the cost of software development for junior specialists is lower. Junior software developers are usually under the management of medium or senior software engineers. They work within a team and require support. Note that the actual software development lifecycle will take more time than hiring medium and senior-level developers. At CodeRiders, most of our tech stack consists of medium and senior developers however due to the increasing demand for software developers we currently hire junior developers together with medium and senior-level developers. They are under the constant management of our CTO or more experienced software developers. Therefore, if you hire junior software developers from CodeRiders consider receiving an all-time control and management from the senior team members, as well.

Medium software developers: Medium software developers are “on their way” to becoming senior-level developers. A good medium software developer can work on multiple tasks effectively and independently, implement complex software solutions.

Senior software developers: As the name says itself, senior software developers are the most experienced IT professionals in the team. They’re able to solve complex problems, work on multiple projects and lead software development teams. Hiring senior software developers certainly cost more, and in return, you get high-quality software services delivered on your doorway in minimum time.

#5 The country or region of your software developers

It is not a coincidence that many business owners spend a significant amount of time choosing the right country or region to hire software developers from. This is due to a fact that software development rates are critically different in various countries. That is why software outsourcing is so popular. The cost of software solutions in most cases is not connected with the service quality but rather with other logical factors and country-specific characteristics.

Based on high software developer rates, a significant number of companies from these regions prefer to hire software developers from other parts of the world and include offshore software development into their business development plan. Some popular regions for software outsourcing include Eastern Europe and some of the central Asian countries, South American countries.

Armenia is one of the most convenient countries to outsource software development needs. It’s located in between Eastern Europe and Central Asia (UTC+4:00 time zone). This is a small country yet quite popular in the international software development industry. Due to its small area, the country has relatively fewer software development companies compared to other software outsourcing giants. This ensures the easy software development company recruitment process with fewer risks of hiring a less professional software vendor. We at CodeRiders made an entire article about “Why Armenia is Becoming a Top Software Outsourcing Destination”.

A Typical Software Development Partnership with CodeRiders

Here is our typical pre-partnership process at CodeRiders.

Step 1: We appoint a video call with our potential client. During this call, the client gets to know our company, what we offer, our values, case studies, our approach to work – basically anything that matters to them.

Step 2: The potential client introduces their software development idea or issue, what they need, and their expectations. For example, deadlines, budget, number of developers, software features, goals, and more.

Step 3: We share our thoughts, offer solutions, and share estimates. If the client has already sent their project’s scope of work (SOW document), we discuss the cost of software development and the software outsourcing lifecycle in more detail. Otherwise, we agree on receiving some kind of software development requirements sheet and speak about our estimates after reviewing the document. In both cases, everything is discussed both in written and verbal forms. Another option is to go with Time and Material engagement model and pay for the worked hours.

Step 4: If our solution and estimates meet the client’s expectations, we sign an agreement where we state the terms of the work. Afterward, we start working on the client’s project as soon as they are ready. By the way, we are also open to signing the NDA document before starting any discussions or signing any agreements.

Summary

We tried to wrap up the most important steps to take and factors to consider in hiring the right software vendors which will also offer affordable software development costs. This theme is drastically huge and we can talk about it endlessly.

However, there is one undoubtedly important nuance when hiring a software outsourcing company. Be aware of the software development rates in that specific region and have at least a birds-eye on the top factors that software outsourcing companies consider when calculating software development cost estimations. This will help you be more confident and have appropriate background information to make flexible changes and come up with the ideal software development cost. Finally, being aware of the market rates and software development cost estimation factors ensures you are not manipulated with overrates.